Analysts give markets a long shot

Ashish Rukhaiyar, TNNFeb 18, 2008, 05.33am IST

Benjamin Graham once famously said past performance is a poor indicator of future performance. Simply put, if the indices moved up in the last week, there is no reason to believe that they will rise in the current week too. However, sentiment appears more positive and most market participants feel that the worst is over.

While analysts are expecting some amount of consolidation at current levels, volatility caused by global factors is not being entirely ruled out. There is a general view that most frontline stocks have corrected around 25-30% in the recent past and are now attractively priced. The Union Budget is around the corner and expectations of populist announcements due to the recent global slowdown is doing the rounds.

Deutsche Bank, in a note to its clients, said current valuations are attractive with a long-term view. "Continuing earnings growth with reasonable visibility makes present corrected valuation attractive with long-term view," said the report. With the present interest rates seen to be at peak levels, any moderation going ahead would act as a positive trigger for the markets, it goes on to add.

Similarly, India Infoline is of the view that the Indian market will gain ground this week if global cues provide support. "The Indian markets look at recording one of the best weekly gains in the coming week. Stocks are still available at rates much cheaper than what they were a month ago. Initial hiccups may soon be overcome with a pre-budget euphoria," the broking house said. Expectations get higher around budget time, it adds.

However, global cues are not very encouraging. Confidence level among American consumers has fallen to its lowest level since 1992, according to reports released on Friday. Further, factory output has failed to increase, thereby giving out stronger signals that the world's largest economy is moving towards recession.

Back in India, last week saw the Sensex gain nearly 4%, although the gains were primarily on account of select index heavyweights. A broad-based rally has so far alluded the market, which has been in the grip of extreme volatility. Last week also witnessed trading sessions, where benchmark indices gained ground even while losers outnumbered gainers by a huge margin. Interestingly, dealers said clients are now wary of taking positions in the side counters due to the volatility. FIIs were net sellers at a little over Rs 1,400 crore during the last week.

On the sectoral side, technology and banking space are being looked upon with interest. Most IT majors managed to hold ground in the recent volatility while some have actually moved northwards. Banking counters have been on an upswing in the recent past with the BSE Bankex gaining more than 7% in the last one week. Many banks have started reducing their benchmark lending rates in the last few weeks. With inflation hovering around the 4%-mark, analysts are expecting more rate cuts by individual banks.